Hi Bala,
Home Theaters come in various shapes and sizes. Don't even consider the sound quality that you get on the demo ones in the shops - It is only when you listen the sound at some of your friend's place, you can conclude on something.
Talking about Home Theater systems - are you considering a component system like Onkyo / Yamaha or a normal one like sony / samsung... My recommendation would be to go for a component system - the lens on the DVD has a fixed life, so after 2 to 3 years, it invariably goes off. Better to buy DVD player which you can buy for 3-4K and attach it to a component system.
The other advantage of a component system is that even if there is an upgrade of technology, you don't need to upgrade the entire set - you can just move on by upgrading the player alone.
In terms of which Component system you should go for, I would recommend you something that supports HDMI and HDMI pass-through - Considering that everything will shift to HDMI in future !!
I know Yamaha doesn't have anything with HDMI in it - This is based on the sets I know of. Onkyo has HDMI passthrough in HT-S5100 and HT-S6500 - In addition, both these sets are 7.1 channel systems - so, they are extremely futuristic - the only thing is they are big!!
Pioneer has started entering the market recently and they have launched their component systems - I have seen a couple of models which are both 5.1 systems - Couldn't make much out of it as both were demo pieces and we discussed demo pieces (They are generally on drugs) 
The budget stated by you is lesser for the Component systems - at the best you can get some entry level COmponent systems of Onkyo and Yamaha - But, they are no fun - They are as good as normal ones. The Onkyo 7.1 series, Pioneer models are costing in the range of 30K to 40K. Donno the exact cost of HT-S6500 as it is a recent launch.
I personally own a Onkyo HT-S5100 and I am extremely happy with it. My set-up at home is as below:
Panasonic 42PV8D HD ready 42" plasma, Phillips DVD player with upgrade to Full HD - connected by HDMI directly to TV for HD Video (Set at 720p even though it is capable of 1080p as my TV is 720p. Setting it to 1080p would mean two processing steps and more damage to the image). DVD player connected to Onkyo HT-S5100 digitally by a single Co-axial cable. Onkyo system set to Dolby Digital EX - this one expands the surround from 5.1 to 7.1 and works grt.
Regards,
K Prasad